Programmed cell death–1 (PD-1) is a coinhibitory receptor that suppresses T cell activation and is an important cancer immunotherapy target. Upon activation by its ligand PD-L1, PD-1 is thought to suppress signaling through the T cell receptor (TCR). By titrating PD-1 signaling in a biochemical reconstitution system, we demonstrate that the co-receptor CD28 is strongly preferred over the TCR as a target for dephosphorylation by PD-1–recruited Shp2 phosphatase. We also show that CD28, but not the TCR, is preferentially dephosphorylated in response to PD-1 activation by PD-L1 in an intact cell system. These results reveal that PD-1 suppresses T cell function primarily by inactivating CD28 signaling, suggesting that costimulatory pathways play key roles in regulating effector T cell function and responses to anti–PD-L1/PD-1 therapy.